ESG Impact: what you need to know - May 2023
Welcome to the May round-up of the standout ESG developments making the headlines, from corporate highlights to policy updates. What's happening globally? Why does it matter? What does it mean for you?
WHAT’S MAKING NEWS?
Welcome to the latest round-up of the standout ESG issues making the headlines, from corporate highlights to policy updates.
This month, we consider what the Federal Budget means for Australia’s net-zero ambitions, the growing appetite for social bonds, the latest trailblazing initiatives in Europe, and more.
POLICY
Budget boosts climate action
In his 2023–24 Budget Speech, Federal Treasurer Jim Chalmers outlined plans to transform Australia into a “renewable energy superpower”. The Budget’s welcome climate investments include an AUD 2 billion Hydrogen Headstart program to accelerate large‑scale renewable projects. The program is expected to be implemented as a credit per kilogram on the price of production and support the development of shared industrial infrastructure in the potential locations of Wollongong, Gladstone or Whyalla.
A further AUD 1 billion has been allocated to the Clean Energy Finance Corporation to create a Household Energy Upgrades Fund to help Australians lower their energy costs and increase their energy efficiency through initiatives such as solar panel installation and switching to electricity.
The establishment of a Net Zero Authority was also in the Budget to help reduce national emissions and coordinate communities' transformation to a low-carbon economy.
Plans for a national sovereign green bond program, to be managed by the Australian Office of Financial Management, were also unveiled, and the Government pledged AUD 1.6 million in co-funding for the development of a much-needed sustainable finance taxonomy, in partnership with the Australian Sustainable Finance Institute.
Why does it matter?
These climate investments represent the building blocks required to support Australia’s transition to a clean energy future.
The Hydrogen Headstart program is a first step towards establishing a domestic renewable hydrogen industry that will help to power Australia’s future prosperity, while the Household Energy Upgrades Fund is expected to cut the cost of living while creating more energy efficient homes.
The national sovereign green bond program seeks to attract more green capital to Australia and allow investors to support public projects that will drive the country’s transition to net-zero.
A taxonomy will help to combat greenwashing and boost the integrity of green investments, and the Net Zero Authority will support a well-managed, just transition for regions, communities and companies.
Victoria ramps up on renewables
In one of the most ambitious emissions-reduction targets in the world, the Victorian government has pledged to cut its greenhouse gas pollution by between 75-80 per cent on 2005 levels by 2035.
The state’s emissions have already been cut by 32.3 per cent below 2005 levels and the government has set a goal for 95 per cent of the state’s electricity to come from renewables by 2035.
The re-establishment of the State Electricity Commission (SEC) will be integral to the emissions cut. It is also intended to help reduce power bills with an AUD 1 billion investment into new renewable, government-owned energy. Victoria is also aiming to have all government operations powered by 100 per cent renewable electricity by 2025.
Why does it matter?
Victoria’s emissions reduction target sets a benchmark for other states to follow. Soon to be formalised in legislation, it also brings the state closer to alignment with the Paris Agreement goals of limiting global warming to 1.5 degrees Celsius.
Along with the state’s target of 95 per cent renewable energy generation by 2035, its renewable energy storage target of 6.3GW and offshore wind target of 4GW by 2035 are also expected to play an important role in achieving the high emissions reduction target.
This ambitious target presents more than environmental benefits for the state. It also enables Victoria to benefit from the significant economic opportunity that climate change action presents around the globe. It is estimated the cuts will drive AUD 63 billion of economic benefit while also creating thousands of jobs.
EU tackles textile waste
Member states of the European Union have endorsed a ban on the destruction of unsold clothing in a bid to curb waste from the textiles industry.
A fifth of the EU’s greenhouse gas emissions are derived from the textile industry and, while almost 6 million tonnes of textiles are discarded by EU citizens each year, only a quarter of those are recycled.
In March this year, Brussels presented a plan to encourage recycling and reuse of products across the bloc. This tougher stance on waste in the textiles industry includes a call for textile products sold in the EU to be more durable, free of hazardous substances, easier to reuse, repair and recycle and made from a larger proportion of recycled fibres.
Why does it matter?
The fashion industry is among the heaviest of emitters, contributing to approximately 10 per cent of global greenhouse gas emissions due to its energy intensive production and extensive supply chains.
A ban on the destruction of unsold clothing reinforces the EU’s commitment to driving growth in the circular economy and sets a new standard that other nations may soon follow. It comes after a recent law requiring electronics makers to adopt USB-C as a universal charging standard to increase sustainability and reduce electronic waste in the EU.
The ban also underscores the EU’s stance that textiles should be produced in a manner that respects the environment as well as human, social and labour rights throughout their supply chain.
More green fuel in the air
In a bid to kickstart a market for green fuel and reduce the aviation sector’s carbon emissions, the European Union has set binding targets for airlines operating across the 27 member states to increase their use of sustainable aviation fuels (SAFs).
Under the new targets, suppliers must ensure that two per cent of fuel made available at EU airports is SAF in 2025. This will gradually rise to 70 per cent in 2050 and airlines are expected to receive about two billion euros in funding from the EU carbon market to help them switch to green fuel.
The aviation industry is among the hardest-to-abate sectors and SAF is widely viewed as the most viable way to gradually reduce air travel's emissions in the near term.
Why does it matter?
While SAF is significantly more expensive than conventional aviation fuels and is produced in small quantities, a lack of widespread SAF infrastructure is also an impediment to its uptake among airlines. The EU’s binding targets for airlines will drive confidence and coordination in building more SAF infrastructure at airports.
A report from the European Union Aviation Safety Agency shows that the current maximum potential SAF production capacity in the EU is around 0.24 million tonnes, which is only 10 per cent of the amount required to meet the proposed mandate by 2030.
However, more companies have announced plans to enter the SAF market by 2030 and the targets are expected to be supported by incentives for cheaper production of SAF as well as more flexible rules for its supply.
CORPORATE
Appetite increases for social bonds
Support for social bonds is on the rise with a recent survey from Goldman Sachs Asset Management (GSAM) showing almost two thirds of professional investors in Europe have either invested, or plan to invest, in them.
The survey, which draws on the views of 700 institutional investors in Europe, including 166 pension funds, shows investors are motivated by the bonds’ potential social impact and as well as their own commitment to sustainability.
The survey also shows that less than 12 per cent of respondents had no preferred social theme for social bond investing, which suggests that investors view the asset class with a clear impact agenda. However, investors have also expressed concerns of a perceived shortage of social products offering exposure to the market.
Why does it matter?
Environmental bonds have led the way in ESG investment, however an uptick in the social side signals a broadening of interest across the market. The increased appetite and perceived shortage of social bonds also presents new opportunities for issuers.
While interest is growing in Europe, closer to home, the Western Australian Treasury Corporation (WATC) is also considering an issuance of social bonds. It recently announced plans to raise at least AUD 1 billion from its debut 10-year green bond, and social bonds may follow.
The central financial services provider for the Western Australian Government, the WATC is exploring broader eligible social categories, including employment generation projects aimed at improving education, training and employment opportunities for Aboriginal and disabled people, as well citizens in regions transitioning from dependence on coal-fired energy production towards renewable energy sources.
WESTPAC IN ACTION
Sustainability Bond delivers a first for Australia Post
Westpac acted as Joint Lead Manager and Joint Sustainability Coordinator for Australia Post’s inaugural AUD 100 million sustainability bond. This Sustainability Bond is focused on both environmental and social projects, with funds raised to help support the delivery of Australia Post’s 2025 Sustainability Roadmap, including a target of net-zero emissions by 2050, and community strategy.
Carbon footprint tracking for customers
Westpac is rolling out a Carbon Footprint Tracker feature on its banking app, allowing customers to track their carbon footprint and estimate the greenhouse gas emissions associated with their spending. The Tracker was developed in partnership with carbon management fintech, Cogo.
Safeguard Mechanism by the numbers
Reforms to Australia’s Safeguard Mechanism kick into action on 1 July with new rules for 215 heavy-emitting facilities. In the latest Westpac IQ article and infographic we’ve rounded up the key facts and figures you need to know about how the mechanism will impact on the way to net-zero.
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